LONDON, (11 February 2019) - Aon, the leading global professional services firm providing a broad range of risk, retirement and health solutions, has said that while the pension industry has moved into action on GMP equalisation, it needs to step up its efforts to ensure that exercises are completed in the most timely and economical fashion.
With the recent passing of the 100-day landmark since the High Court judgment on GMP equalisation, Aon held a follow-up webinar for 300 participants to track progress on the industry-wide project. Polling during the webinar, showed that 75% of participants had done an estimate of the liability increase caused by GMP equalisation, but only 5% so far had a full project plan.
Since Aon’s previous webinar on the issue in November, there had also been some slight change in the approaches that schemes believe they will take to make GMP equalisation happen. Now, slightly more schemes are favouring the Method D2 GMP conversion (50%, compared to 36% previously), but Method C (dual records with a cumulative total) is also still popular (39%, compared to 51%).
Tom Yorath, principal consultant at Aon, said:
“It’s encouraging that schemes are getting to grips with GMP equalisation but there is still much work to be done. Schemes are rightly waiting for guidance from the likes of the DWP and HMRC before deciding on which method to adopt, but this shouldn't get in the way of planning and preparation.
“Setting down a plan, agreeing key objectives and flushing out challenges at an early stage can minimise the risk of setting off down the wrong path and the expense associated with this. All the methods require schemes to address data gaps and to understand their benefit practices, so getting the ball rolling on this now will help ensure that the project is completed in an efficient and timely fashion.
“On the whole, the responses we gained on the webinar reflected what we have been hearing directly from clients. Each Method has its implications; conversion could deliver a big simplification prize – but is not easy to achieve. Method C2 is more administration-heavy but with potentially fewer side-effects for schemes to manage.”
Tom Yorath continued:
“There is still a way to go before a Method decision must be made. But as schemes work through the concept of GMP conversion, it is apparent this is not one thing but a spectrum – and that means that there is a range of options that schemes can take even if they select Method D2.
“Either way, it’s clear that the wider pensions industry needs to plan for both dual records and GMP conversion and to be capable of dealing with both approaches.”
The webinar also looked at whether the demands of GMP equalisation were having any implications for schemes’ intentions on risk management – and, in particular, if they had been tempted to delay projects.
Mike Edwards, partner in Aon’s Risk Settlement Group, said:
“We don’t anticipate any slowdown in risk settlement exercises such as buy-ins, buy-outs and longevity swaps or member options – which may well be a tribute to both schemes’ and the wider industry’s increased ability to manage emerging issues. We are clear to trustees and employers that the message is ‘keep calm and carry on’, with schemes maintaining their de-risking plans but taking care to ensure that these are ‘future proofed’.
“GMP equalisation is going to be sharing space with risk management at the front of trustees’ minds over the next couple of years, so we will continue to monitor how schemes deal with that – and help them to satisfactory conclusions in both cases.”
Notes to Editors
Aon plc (NYSE:AON) is a leading global professional services firm providing a broad range of risk, retirement and health solutions. Our 50,000 colleagues in 120 countries empower results for clients by using proprietary data and analytics to deliver insights that reduce volatility and improve performance.
Aon announced in May 2018 it will retire the business unit brands of Aon Benfield and Aon Risk Solutions, which follows the retirement of the Aon Hewitt business unit brand in 2017. This move was designed to increase the rate of innovation across the firm and make it easier for colleagues to work together to bring the best of Aon to clients. Aon has five specific global solution lines: Commercial Risk Solutions, Reinsurance Solutions, Retirement Solutions, Health Solutions and Data & Analytic Services.
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